The Gas Crisis Reveals the Impotence of European Capital: Sustainable Ambitions at their Last Breath

In the throes of the contradictions intrinsic to capitalism, the EU finds itself confronting a crisis that is not merely economic, but fundamentally structural. The European Commission’s (EC) recent report The Future of Competitive Europe doesn’t mince words—the key issues that are paralyzing the continent are bluntly highlighted: energy dependence, an increasing technological gap, and shortcomings in security and defense. Nevertheless, what the report fails to capture is the irremediable nature of these contradictions, the products of an economic system which can no longer guarantee development without exacerbating its own crises.

When the USSR Did Business

In 1964, work began on the complex Druzhba oil pipeline, designed to transport 50 million tonnes of oil per year and supply the countries of the Eastern bloc. To serve Western Europe, the Urengoy-Pomary-Uzhhorod gas pipeline, “Bratstvo”, was constructed between 1982 and 1984. With a capacity of transporting 100 Gm³/y (100 billion cubic meters per year), it complemented the Soviet gas pipeline network, which was already partially operational since 1973, by providing a direct connection across Western Europe. Its official inauguration was held in France, but only after long negotiations that concluded in February 1978 with the agreement to transport 13.6 Gm³/y of gas through what was then Czechoslovakia. The celebration of this new gas pipeline coincided with the West’s urgent need to switch from Iranian gas due to the fall of the Pahlavi dynasty.

In the 1980s, the Reagan administration sought to persuade the European countries by preventing businesses working with the Soviets on the gas pipelines from accessing essential supplies and components for the pipelines and their associated infrastructure. Reagan was particularly worried that a Kremlin-controlled natural gas infrastructure in Europe could amplify the USSR’s influence, not just in Eastern Europe, but also the West. This concern was primarily why he spent his first term (unsuccessfully) trying to block the construction of the first gas pipeline between the USSR and Germany. But despite these pressures, the gas pipeline succeeded, fuelling the great rise of Russian gas companies like Gazprom, and enlarging the state’s fossil fuel production. In fact, from 1990 onward, the supply of gas to European markets increased notably.

African Gas

Meanwhile, in the ‘80s, the Italian Transmed gas pipeline would carry 30 billion m^3 of Algerian gas per year through Tunisia, supplying a significant amount of gas into Southern Europe, and representing one of the major corridors for non-Russian gas imports. In 1996, the Maghreb-Europe gaspipe (MEG) was completed, which supplied Spain and Portugal through Morocco.

In 2004, Greenstream gas pipeline construction began, supplying Italy with 8 billion tonnes a year. However, the pipeline would later be interrupted by the fall of Gadaffi’s regime. However, due to the diplomatic crisis between Algeria and Morocco in August 2021, Algeria closed the taps of the MEG.

Gas continued to flow from Algeria to Spain through a modified version of the Medgaz pipeline, inaugurated in 2011, which directly connects Beni Saf to Almería with a capacity of 10.5 billion cubic meters per year.

Norway

Though production of gas in Europe has always been far below demand, Norwegian gas comes into Germany through two pipelines: the Europipe I (18 Gm3/y), inaugurated in 1995, and the Europipe II (24 Gm3/y) in 1999.

Norway has drawn enormous benefits from this unstable situation. During the 2022-2023 period, the EU made payments amounting to 50 billion Euro, about three times the average for 2017-2021. This was principally due to the momentary increase in prices, since the increase in the imported volume is only two thirds.

New Pipelines

In 2003, Eni and Gazprom built the Blue Stream (16 Gm3/y) gas pipeline to transport gas from Russia to Turkey across the Black Sea. The Yamal pipeline (33 Gm3/y) was completed in 2005, connecting Siberian gas to Germany through Belarus and Poland. In 2007, Italy signed an agreement with Gazprom to start a second pipeline, the South Stream (63 Gm3/y). However, this project was suspended in 2014 due to the annexation of Crimea, and it was later transformed into the Turkey Stream pipeline (31.5 Gm³/y). This left Turkey as the sole beneficiary of Russian gas. A second pipeline was inaugurated to supply Northern Europe in 2011, the Nord Stream I (55 Gm3/y). A second Nord Stream 2 project (55 Gm3/y) began in 2015, promising the arrival of Russian natural gas while avoiding Ukraine.

Instead, Italy completed the Trans-Adriatic Pipeline (TAP, 10 Gm3/y) in 2020, transporting Azerbaijani gas through Turkey, Georgia, Greece, and Albania. The line splits in Turkey, connecting to the Nabucco gas pipeline (23 Gm3/y), which crosses Bulgaria, Romania, and Hungary to reach Austria.

In 2021, Hochstein, Biden’s national security advisor, was tasked with convincing Germany to freeze the construction of Nord Stream 2. In February, German Chancellor Scholz was summoned to the White House, where Biden said: “If Russia invades […] then there will no longer be a Nord Stream 2.” When a journalist asked how he intended to keep that promise, given that the pipeline isn’t under direct US control, the American president responded: “I promise you, we will be able to do it.”

Ukraine was then invaded by Russia on February 24th. The war led to international sanctions on Russia, to which Russia responded by forcing all gas-importing countries to pay them in rubles. When Poland refused, the Yamal line was interrupted. Keeping to Biden’s promise, the Nord Stream was sabotaged in September 2022. The following day, the Baltic Pipe (10 Gm3/y) was inaugurated for transporting gas from the North Sea to Poland.

Comparing the flow of these gas pipelines, it’s clear how important Russia has been for the supply of natural gas throughout Europe. After all, in 2021, 45% of the natural gas consumed in the EU came from Russia.

Energy Crisis and Social Peace

The disruption of gas supplies from Russia is costing Europe a year’s growth in gross domestic product. Forced to divert substantial financial resources, the EU found itself making huge investments to build infrastructure suitable for the import of liquified natural gas (LNG).

While it’s true that gas prices have decreased quite a bit from the peaks reached during the COVID-19 crisis and the 2022 energy crisis, European electricity prices are still 2-3 times higher than the United States, with gas prices 4-5 times higher. The EC’s report shows that gas price volatility was very limited from 2010 to 2018 when compared with the subsequent period, where volatility increased considerably (up to six times).

Importing liquified gas as a substitute for pipeline gas will make it even more difficult to stabilize prices. The LNG market is even more volatile by nature, as it’s mostly sold in the cash market (or spot market). Here the financial market specializes in the supply of services and goods on a prompt delivery basis.

The volatility of energy supply costs has inexorable repercussions on all sectors of production.
In 2023, the costs of importing fossil fuels increased by 90% compared to 2017-2021 averages.

Even if this aspect seems intuitive, one main consequence should be emphasized.
Because of the great irregularity of government revenues, the European governments are struggling to plan ahead. This has had serious consequences for public administration and for policies aimed at strengthening social peace.

Now we come to the most paradoxical part of the issue. The EC’s report denounces that half of the premium on European electricity compared to the USA is due to the costs of power generation itself—fuel, maintenance expenses, infrastructure investments, etc. However, the other half of the price difference is due to taxation; in the USA, industry pays no taxes on energy consumption or CO² production. So, therein lies the dynamic connecting energy cost volatility and government revenues.

A Brake on Decarbonization Ambitions

The European strategy to break free from the spiral of structural crises—aggravated both by war and geopolitical pressure from the United States—is based mainly on decarbonization and the development of a circular economy. These goals are the only way the European bourgeoisie envisions guaranteeing an energy transition and the long-term security of the continent. However, the decarbonization plan has an inherent technical contradiction: it’s largely based upon the use of gas-fired power plants.

To balance the power grid, power plants that can be turned on and off quickly are needed to compensate for the inevitable fluctuations in energy production from renewables like wind and solar.
This is essential to ensure a steady energy supply when renewables aren’t as available, such as when there’s no wind or sun. Gas-fired power plants are currently the only technology capable of effectively meeting these requirements due to their extremely fast start-up times. Thus, despite the ambition to reduce the use of fossil fuels, natural gas remains a key pillar in achieving energy transition goals, highlighting a huge technical challenge on the road to true decarbonization.

* * *

We will return to this important topic in later issues by addressing the other aspects of the EC report, such as technological stagnation, labor productivity, and defense aspects.